Companies truly interested in creating long-term customer relationships might heed the words of Thomas Schelling.
Schelling said the way one strengthens a relationship between two parties is by "tying their hands," in effect making both sides vulnerable and dependent on each other.
Promises that "we're really interested in making you satisfied" won't work. That sounds like little more than a one-night stand. And technology alone—in the form of customer relationship management programs—can't build close relationships.
If you want to build a forever relationship with your customers, you must understand the characteristics of a quality relationship before taking the necessary steps to build and manage long-term relationships.
The key to all long-term relationships between business-to-business (B2B) partners is symmetrical dependence. As Schelling suggests, each party in the relationship must be equally dependent on the other.
Relationships are confusing
As most of us know from personal experience, relationships are complex. Building a long-term relationship—like a good marriage—is both hard and time-consuming, which is why bookstores are filled with volumes on relationship counseling. Long-term B2B relationships are no less difficult.
The entire subject gets more confusing pretty quickly, especially when you start thinking hard about whether you're currently in a good relationship.
Here are two reasons why:
- You may think you have a close relationship when you don't. By definition, relationships involve two partners. What you consider a close relationship might seem otherwise to your partner, leading to quarrels and bickering. In a B2B context, this means you'll be haggling with your partner over the price, delivery, specs and so on.
- Both partners seem as if they want a close relationship, even if they really don't. If partners convince you they are in it for the long haul, you'll end up giving them all sorts of stuff—like your time, energy, concessions. They'll gladly take these things and then run off with a competitor. Don't be fooled. Not everybody wants a close relationship.
It's not clear to me that companies are willing to tie their hands to their customers. One thing I've learned from working with companies is that they tend to like their customers being dependent on them, but not the other way around.
To build relationships to last, four questions will help you to evaluate potential and make necessary adjustments:
Question No. 1: Are you in a close relationship now?
So how do you know whether you're in a close relationship? There are some clear signposts you can use. Think of one of your business partners—a business supplier or customer, perhaps—and answer these four questions honestly:
- Do you and your partner care about each other? In a B2B context, each party should care whether the other one also makes money. If so, are you willing to give up something to make that happen? If not, you don't have a close relationship.
- Do you and your partner think long term about the relationship? There's no room for short-term commitments here. For example, if a low price is the basis of a relationship, it's probably not a committed one.
- Are you both proactive when it comes to problem solving and to preventing problems? No relationship is issue-free. You should be working to anticipate problems and solving them when they arise. 4. Do you trust your partner, and does your partner trust you? Yeah, yeah...you say you trust each other. But do you really? Don't fool yourself into thinking you have a close relationship if there isn't a solid sense of mutual trust.
Trust me on this one: if you don't have these qualities in your B2B relationship, it's not working. After all, codependent relationships and one-night stands also appear to work quite well, but only until something a little healthier comes along.
The reality is this: close long-term relationships between B2B partners involve much, much more balance.
Question No. 2: Does your customer truly want the relationship to last?
Business customers want a close relationship with a seller when they are buying something that makes them dependent on the seller.
For example, imagine the customer is putting its entire Internet business in the hands of an Internet consulting company. The customer is now dependent on the consulting company. Can you see how the customer might now want a close relationship?
Your customer wants a close relationship if what you sell...
- Is strategically important to a customer
- Is mission critical
- Requires significant switching costs
- Is not modular
Strategic Importance of the Product
When a customer is purchasing something strategically important, that customer becomes more dependent on the seller—and therefore more oriented toward a close relationship.
What do I mean by strategically important? Well, essentially, something that allows the customer to differentiate what it sells. When NutraSweet (a sweetener) first entered the market, it sold its formula to Coca-Cola. This allowed Coke to differentiate its cola from all competitors in the market. Thus, NutraSweet was strategically important to Coke.
Ask yourself: Is what you sell strategically important to your customers?
When a customer is purchasing something for which there are large downside risks, that customer become oriented toward a closer relationship. If you're selling something that is mission critical to a customer, that customer is likely to be open to a close relationship.
Ask yourself: Does what you sell have big downside risks for your customers?
A customer that must build up high switching costs in order to buy and use your product or service becomes oriented toward a close relationship. What types of switching costs are there?
I typically think of switching costs in terms of obvious things like equipment or software. So, if to buy a seller's product you have to change software, you incur high switching costs. Although true, that is a limited view of switching costs.
Switching costs can also come in the form of training or replacing people, or even developing and adopting new procedures that are geared to work with a specific seller (such as information links or administrative controls).
When a buyer must build up such switching costs in order to buy a seller's product, that buyer becomes close-relationship oriented.
Finally, we should note that switching costs might be psychological. These arise due, in part, to the comfort a customer may derive from purchasing from a seller with a strong brand name.
Ask yourself: Does what you sell require large switching costs for your customers?
When buying something that is easy to mix and match within a usage system, a customer becomes less, not more, oriented toward a close relationship.
A "usage system" is simply a set of products that must be used together to be useful to a customer. Most products are purchased as part of an overall system. An Internet connection is an example. By itself, it is worthless; its value becomes apparent only within the context of the usage system (a computer, browser and the Internet connection).
Many things that firms sell are part of a larger usage system (databases and applications, WAP-enabled cell phones and WML coded content, etc.).
To the extent that what a customer is buying is easily mixed and matched inside the usage system, that customer become less relationship-oriented.
Thus, if any database can be used with a given application, the customer for databases becomes less relationship-oriented toward a database vendor. You can readily see how industry standards and the open source movement have a profound impact on modularity when it comes to technology and the Internet.
Ask yourself: Is what you sell highly modular for your customers?
Question No. 3: Are you equally dependent on each other?
Feeling dependency is part of life. We form partnerships, strike buying contracts, integrate business processes and enact all sorts of contracts and deals that make us dependent on each other. That's natural.
But the bad stuff comes when the balance is unequal, when the dependency comes from one partner leaning on another and not receiving support in return. That doesn't feel good, and that's natural too. This is what researchers call "asymmetric dependence."
If you want to have a lifetime relationship, both you and your partner need to perceive symmetric dependence. It's as simple—and difficult—as that.
If your relationship is not symmetric:
- Expect problems to start dominating your interactions.
- Expect the partner who is more dependent to start looking for a replacement (or a second source).
- Anticipate the dissolution of your relationship when a better partner comes along.
Question #4: Are you competing with your customer?
Here's a classic illustration of this dynamic: You're a music label selling through distributors. One day, you decide you can make more money by forgoing the music stores and selling directly to customers via the Internet. You're surprised when the music stores pitch a fit over this move.
But what have you done? You've created asymmetric dependence (the music stores perceive they're dependent on you for a certain artist's music, but they perceive that you aren't dependent on them—since you're now selling direct).
If you're going to compete with a customer (as the label did with the music store), you're going to have problems. The only way to deal with this is to either stop competing altogether or find a way to limit the degree by which you compete (by, for example, restricting your online sales to certain artists).
However it's done, competing with a customer is typically a setup for disaster, so you shouldn't be surprised when disaster strikes.
Coming in part two: It's Valentine's Day and you have the option to give someone fresh or dried flowers. The right choice will help cement a long-term relationship. Knowing not only which one to pick but also WHY will truly help you build B2B relationships to last a lifetime.
Continue reading "B2B Relationships Built to Last (Part 1)" ... Read the full article